I like to take lots and lots of numbers and turn them into proprietary concepts and multi-platform content. Three of my longstanding publishing creations: the valuations of sports teams, ranking actors and movie studios on bang for the buck (ROI) and the Forbes Fab 40 (the most valuable sports brands). My most recent idea was Names You Need To Know, which broadened my concept of list creation to include direct input from our audience. I also like to take apart corporate balance sheets to measure earnings quality and have a passion for economics (my MBA thesis at Long Island University was an empirical study on the cause of inflation in which regression analysis showed a significant correlation between the general level of prices and the money supply). Besides being an Executive Editor at Forbes I also have a gig as co-host and Managing Editor of the 3-time New York Emmy award winning Forbes SportsMoney on the YES Network and Fox Sports 1 with my buddies at YES, co-host Bob Lorenz and producer David Alfreds, both of whom have taught me a tremendous amount. I also regularly appear on Fox and CNBC to chat about the business, political and sports issues of the day. One of my favorite times is being a guest every few weeks on Larry Kudlow's radio show on WABC Saturday mornings. Larry has been a great mentor and friend. My brother in arms is Kurt Badenhausen, whom I have worked with for many years and knows more about sports numbers than anyone.

The Business Of Baseball 2012

The National Pastime is flourishing thanks to cable companies’ desire for live baseball programming.

The average Major League Baseball team rose 16% in value during the past year, to an all-time high of $605 million. In 2011, revenue (net of payments to cover stadium debt) for the league’s 30 teams climbed to an average of $212 million, a 3.4% gain over the previous season. But operating income (in the sense of earnings before non-cash charges and interest expenses) fell 13%, to an average of $14 million in part due to a 5.1% increase in player costs (including benefits and signing bonuses for amateurs), to $3.5 billion in 2011.

Rights fees paid by cable television channels are behind the growth in team values. Aggregate cable television revenue for baseball’s 30 teams has increased to $923 million from $328 million over the past 10 years. And thanks to new television deals inked by teams like the Houston Astros, Los Angeles Angels of Anaheim and the Texas Rangers that have yet to kick in, as well as the pending deal for the San Diego Padres and a likely new, rich deal that will begin in 2014 for the Los Angeles Dodgers, local television revenue could exceed $1.5 billion in 2015.

The richer television deals are evident in the prices that are being paid for teams. Jim Crane, for example, paid $610 million for the Houston Astros in November. Crane’s purchase included a 45% stake in Comcast SportsNet Houston, a new regional sports network owned by the baseball team, Houston Rockets of the National Basketball Association, and cable operator Comcast. The RSN will begin televising the Astros in 2013 and pay the team an average of $80 million in rights fees over twenty years, more than three times what the Astros received from Fox Sports Houston last season.

The debt-laden Los Angeles Dodgers, whom we say are worth $1.4 billion (including the team, Dodger Stadium and the lease to the parking lots), filed for bankruptcy last July. Yet Frank McCourt has offers ranging from $1.3 billion to $1.6 billion for his team. Why? The Dodgers current local television deals with Fox’s Prime Ticket and local station CBS affiliate KCAL Channel 9 expire after the 2013 season and the next deal could pay the team a rights fee that averages around $100 million a year, $55 million more than the team took in last season from Fox and KCAL.

The ultimate cable model for a team is to own an equity stake in a regional sports network because it means you get two revenue streams (cable fees and advertising revenue) and have greater financial flexibility (for example, debt can be parked at the RSN rather than the team). The Rolls-Royce of the RSN model is the New York Yankees, who own 34% of the YES Network (full disclosure: I am co-host of Forbes SportsMoney on YES). The Bronx Bombers are the most valuable team in baseball, worth $1.85 billion, tying them with the National Football League’s Dallas Cowboys for the top spot among American sports teams and placing them second in the world to Manchester United, the English soccer team worth $1.9 billion. YES generated a staggering $224 million in operating income and paid the Yankees a $90 million rights fee in 2011.

The Boston Red Sox, whose parent, Fenway Sports Group, owns 80% of the New England Sports Network, pioneered the duel revenue cable model in baseball in the mid-1980s. We value the Red Sox, who generated $60 million from NESN in 2011, at $1 billion this year, third-most in baseball. The Red Sox averaged a 7.9 rating on NESN last season, tied with the Milwaukee Brewers for third in baseball.

Although both the Kansas City Royals and Minnesota Twinswere unsuccessful with attempts to launch RSNs in 2003 because they could not strike sufficient deals with carriers, the Cleveland Indians have shown that it is possible for a small market team to have its own network. The Indians started SportsTime Ohio in 2006, spurning a rights fee offer from Fox Sports Net Ohio in excess of $30 million per season. Although the Indians raked in less than $30 million in rights fees from SportsTime last year, team owner Larry Dolan and his family made a huge profit from their ownership of the RSN. Besides Indians games, STO programming includes coverage of the Browns, Ohio State, high school sports, the Mid-American Conference and golf.

Both the Chicago Cubs, who rose 14% in value, to $879 million and the Philadelphia Phillies, who increased 19% in value, to $723 million, are expected to enjoy huge increases in local television revenue when their current deals expire. The Cubs contract with WGN, which televises about half the team’s games, ends following the 2014 season and its deal with Comcast SportsNet Chicago expires after 2019. The Phillies’ TV deal with Comcast SportsNet Philadelphia expires after the 2015 season. The Phillies led baseball with an average rating of 9.7 last season.

Only two teams went down in value: The New York Mets and Tampa Bay Rays. The Mets fell 4% in value, to $719 million, due to falling attendance and $41 million in operating losses. The Rays, one of the league’s biggest receivers of revenue-sharing, slipped 2% in value, to $323 million, as attendance and television ratings crashed last season.

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I think your magazine and pretty much the rest of the US is really under valuing the game of Baseball… To tell me that the Dodgers value has jumped 75% because of the sole reason that they are up for sale and are receiving offers in the 1.4 billion range tells me that your value of teams comes no where close to that of what actual investors are willing to pay for a baseball team. Think of it this way. Take the leagues biggest/richest team the NY Yankees. Assume the Dodgers sell for 1.5 Billion, do you honestly think the Yankees would sell for anything less than 2.5? The team has the strongest global presence of any American sports team, (the cowboys don’t compare, not sure why their tied but thats a different argument). The team has 27 titles and is constantly in the playoffs. Their apparel sells worldwide unlike that of any football team. (Yes there stuff sells out side the US as well but not at the level of the NY Yankees or Boston Red Sox.) So when you value a team like the Yankees, you have to do it on a more global scale. I know if I had the funds I would easily pay 2.5 Billion for the Yankees because I know I could easily earn that back in 10-20 years. Hell, I’d pay the 1.8 you valued the Yankees at for the Red Sox for the same reason. So please stop undervaluing our past time and give it some well deserved credit. It’s only been around for over 100 years so show it some more respect.

Joshua: Our $1.4 billion value of the Dodgers is not due to the fact bidders for the team at this point are offering between $1.3 billion and $1.6 billion for the team. Our valuation (enterprise value) is based largely on the added revenue the new television deal will likely generate for the Dodgers beginning in 2014. Indeed, we were surprised by huge increase in the value of local television programming for baseball. The vanity premium commanded by a trophy franchise like the Yankees would push the sale price over $3 billion if you were to include the team’s interest in its regional sports network.

Each year Forbes publishes this list. It highlights the highs and low of baseball and the sports economics of the game. However, each year, the content within the list is factually inaccurate. The Magazine lists the owner of each team. Generally, it lists one individual. However, that individual is generally the Managing Partner or Managing Member. In fact, many of the teams have 25+ business partners that each are considered owners and serve on the Board of Directors. These individuals do not want to be in the spotlight and usually have other businesses. However, to single out one person as an owner is not accurate. In fact, in some instances, the Managing Member that you singled out as the owner may not have the most ownership in the team.

To offer an error in the analysis that is probably more significant to the analysis than the one pointed out by Matt, the rankings based on metropolitan area size aren’t always correct. The relevant market for both the Giants and the A’s is the San Francisco-Oakland-San Jose Combined Statistical Area. And that is about 7.4 million, not 4.3 million. The fact that both teams can pull from San Jose is central to the recent fight between the teams for who “owns” Santa Clara county, of which San Jose is the largest city.

I presume this kind of error may be reflected in other population bases like SF/OAK/SJ, but I haven’t checked.

skeptical2: There is no error in our analysis. While we list a team’s Metropolitan Statistical Area population (MSA), it is not a factor in the team’s valuation. In general we stick to just listing a team’s MSA so we have comparable statistics for all teams. So for the Giants and As that is the Census Bureau’s San Francisco-Oakland-Freemont population, the one that includes the immediate core areas economically influenced by the two teams.

The MLB has one of the best-executed mobile platforms of any entertainment network. Do you think the iPhone app has led to increased viewership, pushing up the value of these cable deals, and the incentive for the teams to put additional resources into publishing and broadcasting on their own?

mikeschwab: MLBAM has done an excellent job of increasing good content on mobile platforms. But at this point the incremental revenue from MLBAM is created and distributed evenly throughout MLB from league-wide deals rather than team-specific cable deals. The Yankees, for example, do not have an app. The challenge for MLB is to generate higher revenue from local content without reducing the value of national deals.